First pages
Part 01
What Is Innovation?
Part Contents
1 Introduction
3
2 Types of innovation
24
3 Technological change
46
1
Smi21236_Chapter 01.indd 1
7/15/2009 4:53:35 PM
First pages
Smi21236_Chapter 01.indd 2
7/15/2009 4:53:35 PM
First pages
Chapter
01
Introduction
O bjectives
When you have completed this chapter
you should be able to:
YY describe the activities associated with
YY appreciate the importance of innovation
YY appreciate the part business models
for business and the national economy
YY understand the nature of innovation and
Mini Case
be able to distinguish between invention
and innovation
innovation
play in innovation
YY understand the link between
innovation and diffusion
Silicon Valley – the home of innovation?
Silicon Valley in California is synonymous with innovation. It is the quintessential example of a
place that is all about innovation. Nowhere is so readily identified with new products and new
services. Indeed in the last 50 years no other place on earth has been the location of so many
innovations. Among the better known ones are:
QQ
integrated circuit (Intel)
QQ
personal computer (Apple)
QQ
3D graphics (Silicon Graphics)
QQ
database software (Oracle)
QQ
Web browser (Netscape)
QQ
online auction (eBay)
It is not merely the number of innovations, it is the fact that Silicon Valley has gone on
producing innovations over time.
There are other places in the world that have stronger records in scientific discoveries and
scientific breakthroughs. Cambridge, in the UK, has an outstanding record in terms of scientific
3
Smi21236_Chapter 01.indd 3
7/15/2009 4:53:35 PM
First pages
4
Chapter 01 Introduction
breakthroughs. These include: discovery of the electron, splitting the atom, and the
identification of the structure of DNA. Though these achievements are the stuff of Nobel Prizes
and as such highly significant, they are scientific breakthroughs, they are not innovations. Only
Silicon Valley has an outstanding record in terms of innovation.
It wasn’t always so. In the 1940s what is now Silicon Valley was a peaceful agricultural
valley (Saxenian, 1983). Located at the southern tip of San Francisco Bay, Silicon Valley (or
rather Santa Clara county) stretches from Palo Alto in the north to Gilray in the south. Covering
1,500 square miles and currently home to 2.5 million, today it is the densest concentration of
high technology business on earth.
It is innovation that makes Silicon Valley unique. As one recent study (Lee et al., 2000: p3) noted:
“
What sets Silicon Valley apart is not the technologies discovered there, but its
record in developing, marketing and exploiting new technologies.
”
Silicon Valley’s unique feature is its capability for developing new technologies and
exploiting them commercially: in short, its capability for innovation. It is this capability that this
book aims to explore.
Sources: Lee, Miller, Hancock and Rowen (2000); Saxenian, (1983).
What is innovation?
I
n 2002, listeners to the Today programme on BBC Radio 4, in a poll to mark 150 years of the
UK Patent Office, voted for their top ten inventions (in descending order):
1
2
3
4
5
6
7
8
9
bicycle (Pierre Lallemente, 1886)
radio (Guglielmo Marconi, 1897)
computer (Alan Turing, 1945)
penicillin (Florey and Heatley, 1940)
internal combustion engine (Nicolaus Otto, 1876)
World Wide Web (Tim Berners-Lee, 1989)
light bulb (Thomas Edison and Joseph Swann, 1829?)
cat’s eyes (Percy Shaw, 1936)
telephone (Alexander Graham Bell, 1876)
10 television (John Logie Baird, 1923)
The bicycle, invented by Pierre Lallemente in Paris in the 1860s, won by a landslide. Since the
poll was organised to mark the opening of the Patent Office, it is not surprising that it was
designed to elicit a top ten of inventions. The Patent Office is in the business of inventions. It
issues patents to inventors whose ingenuity and perseverance has resulted in an “inventive
step” that gives rise to an invention. Interestingly, all the inventions listed here are also
innovations. Why? Because in each case the process did not end with invention. All the
inventions became products that found markets and are still in use today. This is one of the key
differences between invention and innovation. Not all inventions – even those that are
Smi21236_Chapter 01.indd 4
7/15/2009 4:53:35 PM
First pages
What is Innovation?
5
registered for patents – get as far as being successful products in the marketplace. As Figure 1.1
shows, innovations represent a subset of a much bigger set of inventions. Why? Arduous though
the task of invention is, the commercialisation process required to get an invention ready for
the market is also lengthy and demanding, requiring a different range of capabilities so that
many inventions do not make it to market and become successful innovations.
Innovations
Inventions
Figure 1.1 Inventions and innovations
Innovation defined
An innovation is something that is new. The word innovation is derived from the Latin word
“nova” meaning new. However, merely being new does not quite catch the essence of innovation.
An innovation is also normally something that is novel and different. Just how different, as we shall
see later in this chapter, varies enormously, but typically most innovations have a degree of novelty
about them. This newness and novelty is captured in most definitions of innovation:
“
“
An innovation is an idea, practice or object that is perceived as new by an individual or other unit of adoption.
Rogers (1995: p11)
Innovations are new things applied in the business of producing, distributing and
consuming products or services.
Betje (1998: p1)
”
”
Although both of these definitions highlight the novelty of innovation, there are other aspects
that they miss. In particular they do not help to distinguish innovation from invention. Hence
more effective definitions are:
“
“
Innovation is the successful exploitation of ideas.
DTI (2004: p5)
The first commercial application or production of a new process or product.
Freeman and Soete (1997: p1)
”
”
These latter definitions are more effective because they refer to business and commerce, an
important aspect of all innovations. They highlight the fact that innovation is about the
commercial exploitation and application of ideas and inventions, so that they can be traded in
the market place. The second definition is particularly helpful because it notes that innovation,
Smi21236_Chapter 01.indd 5
7/15/2009 4:53:36 PM
First pages
6
Chapter 01 Introduction
Mini Case
as well as involving something new, also requires commercialisation in order to make an
invention ready for market. However, Freeman and Soete’s (1997) definition of innovation does
have one particular weakness – it implies that innovation relates to physical objects or “things,”
i.e. products and processes. It fails to make clear that innovation also embraces services. New
and novel services form an important class of innovation. Indeed the Internet has led to a
growth in the proportion of innovations that are services. Facebook, eBay, YouTube and Flickr
are examples of the many highly popular, new and novel services made possible through the
application of Internet technology to meeting consumer needs.
Hence innovation embraces both a technological and a creative dimension, that we normally
refer to as invention, together with a commercial dimension that involves the exploitation of the
invention to turn it from a model or prototype into something that is available in the market for
consumers to purchase. This latter aspect is much less heroic and less glamorous then invention,
but it is crucial. Without it an invention is little more than a great idea, and all too often this is an
element of innovation that is neglected, with disappointed consumers the result. Only when both
aspects have been effectively handled does one have an innovation.
BBC iPlayer
The BBC has a world renowned reputation as a broadcasting organisation providing a wide
range of TV and radio services and in December 2007 it launched an entirely new kind of
service, an online video-on-demand service called BBC iPlayer. The new service allowed
audiences in the UK to watch and listen to BBC programmes online for up to seven days after
their initial broadcast.
Initiated in 2004 by the then Director-General of the BBC, Greg Dyke, the iPlayer project
began at a time of intense technological change when it was not at all clear which method
would be the most appropriate way to deliver this kind of video-on-demand service. By mid2007, with the service due to be operational by the end of the year, iPlayer, despite having
cost double-digit millions, wasn’t ready. At this point the BBC’s Head of Future Media and
Technology, Ashley Highfield, brought in a South African, Anthony Rose, to head up the
beleagured iPlayer team. Rose’s philosophy was simple: “It had to appeal to Mrs Smith, aged
65, who wants to watch EastEnders, as well as the Twitterati”. To this end he was careful to
make sure the development team paid particular attention to making the service easy to use.
By December 2008, a year after iPlayer was launched on schedule, it was clear that Rose
and his team had succeeded. The new service was so easy to use that it attracted almost
10 per cent of the UK online traffic (it rose to 20 per cent during the Beijing Olympics), putting
it in third place behind Google and Microsoft. With a million users everyday accessing 1.5 million
TV and radio shows, it was clear that the British public found the new service extremely easy
to use, leading one commentator to suggest that iPlayer had redefined TV and how we use it.
Source: Chibber (2009).
The scope of innovation: just how new is it?
Just how new and different does something have to be to make it an innovation? The answer is
that the degree of novelty can be modest. Innovation covers a vast range of products and
services, and in some cases the degree of novelty is barely discernible in technical terms and
Smi21236_Chapter 01.indd 6
7/15/2009 4:53:36 PM
First pages
What is Innovation?
7
more a matter of marketing and presentation. Two particularly significant aspects of “newness”
are new to market and new to a company. New to market implies that this is a product or
service not previously offered in the market. The product or service is entirely new, though
clearly something similar could have been offered in other markets and then adapted to the
market in question. With products or services that are new to a company, there is probably less
scope for novelty because other companies might already be offering the product or service.
Combining the two aspects of market and company gives the two-dimensional matrix
shown in Figure 1.2. This identifies a number of common forms of innovation and serves to
highlight how the degree of novelty can vary.
Newness to Company
Newness to market
New Product
Lines
Improvements
to Existing
Products
Completely
New Products
Line
Extensions
Cost
Reductions
Product Repositioning
Figure 1.2 Degrees of innovation
Source: Adapted from Cooper (2001)
In the top right-hand corner of the matrix, we have products or services that are both new to
the market and new to a company. Labelled “Completely New Products,” these are products/
services with the highest degree of innovation. A good example would be the Apple iPod or the
Sony Walkman. They were, when first launched, both completely new products. The Sony
Walkman was the world’s first portable audio player. Prior to its introduction there simply was
no practical way of listening to music while walking around. The iPod too was “completely
new” because it was the first audio player to combine MP3 technology for listening to music
with the capability to store a large quantity of music. There had been earlier attempts to
produce this kind of product, most notably the PJB100 (Levy, 2006: p58), but they had been
bulky and impractical and had not been a commercial success. The iPod possessed other novel
features as well. It was extremely compact, it combined ease-of-use with a high degree of
functionality. Consequently, one would have little difficulty in assigning the iPod to the position
of a completely new product with a high degree of novelty.
Products or services that can be identified as “line extensions” score moderately on both
the market and company axes. Line extensions are based on existing products. However, the
product is altered in some way to give it new attributes. It is the addition of these new attributes
that makes the product an innovation. However, the principle purpose behind the addition of
new attributes is to enable the product to appeal to a new group of consumers. By so doing
the product line is being extended, hence the term “line extension”. One field where line
extensions are common is pharmaceuticals. For example, the painkiller paracetemol has
Smi21236_Chapter 01.indd 7
7/15/2009 4:53:36 PM
First pages
8
Chapter 01 Introduction
Mini Case
been in widespread use for many years. In recent years, line extensions have proliferated.
Good examples include low-dose liquid forms of paracetemol for the market for children,
slow-release versions of paracetemol in liquid form for those consumers wanting a treatment
they can take overnight, and paracetemol powders that come packaged with a de-congestant
for the “cold remedy” market. Each of these product offerings was in its time an innovation
but the degree of novelty is limited. There is little in the way of new technology, rather it
is a case of adapting the product by adding further formulations to give the product
new attributes.
There will generally be less novelty with “re-positionings” and new product lines. New
product lines are where companies introduce what for them are new products, but which are
already available on the market. Thus Unilever’s decision to introduce the “Clearblue” range of
pregnancy testing kits (Jones, G., 2005: p293) was an example of a new product line. At the
time, Unilever’s product portfolio covered mainly cleaning and food products and the decision
to produce medical diagnostic products was a case of introducing a new product line.
A classic case of re-positioning was Häagen-Dazs ice cream. Until this brand of ice cream
was introduced in the early 1990s, children comprised the main customer base for ice cream,
the product often being regarded as a reward or treat for special occasions. This was reflected
in the marketing of ice cream. However this changed with the arrival of Häagen-Dazs. With its
high-quality natural ingredients Häagen-Dazs was an example of re-positioning with the
product aimed at adults rather than children. This re-positioning was graphically reflected in
the early advertising for Häagen-Dazs, which featured a campaign that aimed to “eroticise” the
brand through words and images emphasising sensuality and love-making, in order to enhance
the appeal of the product to the adult market (Rutherford, 2007).
This analysis and the examples given serve to show that innovation is by no means a
uniform concept. The degree of innovation in terms of just how novel the product is can vary
enormously. In some cases the novelty associated with what some would term an innovation is
at best superficial, some might say trivial. In other instances the degree of innovation is huge, as
entirely new products that bear little relation to anything currently available appear on the
market. This difference is taken up and analysed in more detail in Chapter 2.
Lucozade
Lucozade was first manufactured in Newcastle in 1927. Its inventor, a local chemist, had
experimented for several years to produce a drink that would be a source of energy to aid
sick children and invalids who were convalescing from illness. It went on sale in 1929 in a
distinctive large glass bottle with an orange cellophane wrapper. It was promoted through an
advertising campaign with the strap line, “Lucozade aids recovery”. It was widely used for
many years in hospitals and in the home to aid children recovering from a period of illness.
In 1983 the product underwent a re-branding designed to re-position it as an energy drink
aimed at the growing fitness market. The advertising agency Ogilvy and Mather came up with
a new strap line, “Lucozade replaces lost energy,” and launched an advertising campaign
featuring the Olympic champion Daley Thompson. The packaging was also changed to a
smaller and more convenient plastic PET bottle. The effect of the re-positioning was dramatic.
Between 1984 and 1989 the value of UK sales more than trebled to £75million.
Smi21236_Chapter 01.indd 8
7/15/2009 4:53:36 PM
First pages
Innovation: Invention – Commercialisation – Diffusion
9
Innovation: invention – commercialisation – diffusion
F
rom the definitions of innovation it becomes clear that innovation is closely linked to
invention. In fact invention forms part of (or even a stage in) the process of innovation.
Invention involves new ideas, new discoveries and new breakthroughs. These are
developed via a process of experimentation to arrive at a workable invention. This typically
forms part of the research element of research and development (R&D). Chapter 9 of James
Dyson’s autobiography (Dyson, 1997) provides a very realistic and detailed account of this
process. A key feature of inventions is their “newness,” which means that they incorporate
some “inventive step”. However, inventions are not normally ready for market at this stage.
It is one thing to produce a single item, quite another to be able to produce it in large volumes
at a cost and a level of reliability that meets the demands of everyday use.
Innovation therefore includes not only invention, but also activities that facilitate the
introduction of new or improved products or services onto the market. These activities
form part of the exploitation/commercialisation phase which is such an essential part of
innovation. Figure 1.3 makes clear that innovation embraces both invention and
commercialisation. The reason for the set of inventions shown in Figure 1.1 being much
bigger than the subset of innovations is that commercialisation is often a lengthy and
expensive process and many inventions, though they incorporate good ideas, never make
it as far as the marketplace.
Commercialisation typically includes the development part of research and development
(R&D) which involves ensuring that an invention is able to work reliably and safely, not only in
the laboratory or workshop, but in the hands of actual users, and is capable of being produced
in quantity in a manufacturing context. In addition commercialisation involves a range of
business activities such as marketing, organisation and finance. These are required to prepare
the invention for market, in particular to ensure that potential users are aware of it and can gain
access to it.
While invention and commercialisation taken together make up innovation, there is a
third phase, diffusion, which while it is not part of innovation is closely associated with it
(Figure 1.3). Diffusion describes the rate at which consumers adopt the innovation. In some
cases diffusion can be relatively slow, in other cases, as with many Internet related services
such as eBay and Facebook, it can be very rapid.
Invention
Commercialisation
Diffusion
Innovation
Figure 1.3 Invention, commercialisation and diffusion
Invention
The invention phase of innovation is the one that is most commonly associated with
innovation. It is the phase where ideas are turned into workable inventions. It is the phase
Smi21236_Chapter 01.indd 9
7/15/2009 4:53:36 PM
First pages
10
Chapter 01 Introduction
where the idea is made to work. As noted earlier, if the product or service in question is
technological, this is a phase that is typically characterised by much experimentation. The
function of the experimentation phase is to prove the concept and arrive at something that is
workable. If the innovation is a modest one, with comparatively little novelty, as with line
extensions and re-positionings, there may be little or no experimentation, nonetheless there
may be a considerable amount of technical work to undertake in order to arrive at a product
with the desired attributes.
Individual
(heroic)
Corporate
(Closed )
Invention
Open
Figure 1.4 Three routes to invention
There are three models that describe how the invention phase of innovation can be
undertaken. The first is what one might describe as the classic model of invention, where a lone
inventor toils away on his or her own. In this instance the inventor is portrayed as a “heroic”
figure, battling against the odds, isolated, lacking support and short of resources. Although
examples regularly appear on the BBC TV programme Dragon’s Den, this model is actually
comparatively rare. However, there continues to be a small number that has a big impact and
attracts a high public profile. The Internet search engine Google, for instance, was established
on the basis of data mining software developed by its founders, Larry Page and Sergey Brin
(Vise, 2005), while they were postgraduate students at Stanford University in California.
Similarly, the bagless vacuum cleaner was developed by James Dyson (Dyson, 1997) working
on his own in the garage of his home near Bath. In both cases the invention was the product of
individual effort.
Despite these high-profile examples of individual invention, this model has generally given
way to a corporate model of invention, where corporate research and development (R&D)
facilities in the form of R&D laboratories are the main engine of invention. From the midtwentieth century large corporations like Dupont, IBM and AT&T were the basis of this model
(Chesbrough, 2003b: p35). They possessed massive R&D facilities and they competed by the
simple expedient of doing more R&D than anybody else in their industry.
Because most of the activities associated with invention take place within a single
organisation, as do the associated commercialisation activities, the corporate model has in
recent years come to be termed the “closed model” of innovation (Chesbrough, 2003a).
Latterly, however, we have come to see a new model emerge, which stands in marked
contrast to the closed model of innovation. The open model of innovation (Chesbrough, 2003a)
recognises that invention isn’t only the product of corporate research labs. While this source is
important there are other external sources which can be important today. These external or
outside sources include other large corporations which, having developed new technologies,
decide not to commercialise them. Having no immediate and obvious use for the technology
Smi21236_Chapter 01.indd 10
7/15/2009 4:53:37 PM
First pages
Innovation: Invention – Commercialisation – Diffusion
11
Mini Case
themselves, they license the technology to others who are willing to innovate and turn the
technology into new products. Another external source is small, entrepreneurial, high-tech
companies. Perhaps formed as spin-offs of universities or other companies, these highly
specialised companies possess knowledge and expertise in very narrowly defined fields. These
enterprises may not have the facilities to achieve outstanding technical break-throughs, but they
do have what much innovation demands, namely the capability to adapt the technology to a
particular, highly specialised application. This specialisation, combined with a high degree of
flexibility, enables these companies to produce potential commercial applications that can then
be commercialised in collaboration with large corporations.
It is important to note that with the open model of innovation, while inventions can come
from outside the organisation, nonetheless much innovation activity (i.e. commercialisation) is
normally carried out internally. Such is the flexibility of open innovation, in contrast to closed
innovation, that the invention may come about via the internal route, only for the external route
to be used for the commercialisation phase as a third party commercialises the invention.
Antibiotics – Invention v. Innovation
Antibiotics are today a standard prescription/treatment for a vast range of infections, and yet it
was only in the 1950s that they first came into widespread use. As an innovation antibiotics are
today attributed to three individuals: Alexander Fleming, Howard Florey and Ernst Chain.
Fleming worked at St Mary’s Hospital in Paddington in London. In 1928 he was studying a
particular type of bacteria: staphlococci. To replicate an earlier study he prepared a number of
cultures of staphlococcal bacteria and then left them to grow while he went on holiday. When
he returned he noticed that on one of these cultures there was a growth of mould and that
around this growth the colonies of bacteria had failed to develop. He called in a colleague,
Charles La Touche, to investigate the mould and he identified it as a strain of penicillin. Fleming
then proceeded to study a whole range of moulds but found that none had the anti-bacterial
power of the one that had contaminated his experiment. He and his assistants then attempted
to purify and stabilise the penicillin that they had been using, but were only able to produce a
small amount in a very weak form. However, Fleming had found that penicillin provided a
method of diagnosing influenza and this required only a small amount of penicillin. Fleming
wrote up his work in a scientific paper outlining his test for influenza. Having identified
penicillin as a potential diagnostic tool, Fleming took the development of penicillin as an
antibiotic that could cure infections no further.
It was more than ten years later that a team at Oxford University under Professor Howard
Florey began to look at the potential of penicillin as an anti-bacterial drug for treating
infections. In 1939 Florey and his colleague, Ernst Chain, gained a grant from the Rockefeller
Foundation to look further into the potential value of penicillin as an antibiotic. In May 1940
Chain began experimenting with mice, which had been given a lethal dose of streptococci.
These quickly showed the therapeutic power of penicillin as an antibiotic. With great difficulty
enough penicillin was produced to enable clinical trials on a small number of human cases
suffering with life-threatening infections. The power of penicillin to combat infection was
immediately evident and Florey and Chain reported their results in The Lancet. The problem
remained how to produce penicillin in anything like the quantities where it could be used to
treat humans. Florey tried to interest the British drug industry, but with war-time demands none
Smi21236_Chapter 01.indd 11
7/15/2009 4:53:37 PM
First pages
12
Chapter 01 Introduction
was able to help. Undaunted, Florey and his team turned to the US. They approached the US
government’s Committee on Medical Research (CMR) who were quick to see the potential of
the new antibiotic. As a stop-gap measure, the CMR enlisted the support of a US department of
agriculture research laboratory in Peoria, Illinois, that was able to develop a laboratory-based
method of producing penicillin. This was important in increasing the availability of penicillin
for experimentation, but came nowhere near commercial production. To get this, Florey, with
the support of the CMR, enlisted the help of a number of US drug companies including Merck,
Squibb and Pfizer. It was the smallest of the three, Pfizer, that made the vital contribution.
Pfizer developed a technique known as “submerged fermentation”. From a situation where
there was only enough penicillin to treat one human case in March 1942, by early 1943 there
was enough for 500 and, with 21 firms producing it, by 1945 there was sufficient to treat the
needs of all the Allied casualties resulting from the D-day invasion of Normandy in June 1944.
By this time limited distribution to civilians had also begun. As the new antibiotic came into
general use in the late 1940s, so the price fell dramatically from $200 per million units in 1943
to only 50 cents in 1950.
Source: Kingston, 2000.
Commercialisation: business models
Invention, discoveries and breakthroughs, though they may be of great interest to the
technological community and on occasion attract much public interest, are actually of only
limited value. This is because they may be dramatic, they may be exciting, they may be the
product of a great deal of hard work, but they only release value when consumers start buying
them. A way has to be found to transform the “technological potential” of an invention into
economic value. The essence of the commercialisation element of innovation is to find an
appropriate way to unlock what Chesbrough (2003a: p64) describes as the “latent value” of a
technology in order to generate real value.
There are potentially many ways to commercialise an idea or a technology, though in
reality only a very small number of them are likely to succeed. Commercialisation mechanisms
are increasingly described as “business models”. The rise of the Internet and the so-called
“dot-com bubble” has fuelled interest in business models, partly because a number of new
models have emerged and partly because the business model is perceived to be the key to
unlocking the new opportunities created by the Internet.
What do we mean by a business model? Essentially a business model is an enabling device,
that is, a tool that allows inventors to profit from their ideas and inventions. How does a
business model enable innovation? According to Chesbrough (2006, p108) a business model
performs two important functions as far as the commercialisation of an invention is concerned.
These functions are: value creation and value capture. Value creation refers to a series of
activities that enable the user to recognise the benefit and thence the value that he or she
can gain from the invention. With new technologies in particular, this is a vitally important
function, because the technology may be the product of a scientific breakthrough rather than
a specific quest to meet a user need or solve a user problem. What the business model has to
do is firstly, identify the users to whom the innovation is going to be of use and then articulate
the “value proposition” so that users are aware of its purpose and the benefit they can expect
Smi21236_Chapter 01.indd 12
7/15/2009 4:53:37 PM
First pages
Innovation: Invention – Commercialisation – Diffusion
13
to derive. Only when the user recognises the benefit to be gained from a new offering is he or
she likely to be willing to consider purchasing it. No matter how enthusiastic the inventor,
unless the articulation of value is effective potential users will not be interested.
Value
creation
Invention
Business
model
Value
capture
Mini Case
Figure 1.5 The functions of a business model
Flash of genius
Marc Abraham’s recent film Flash of Genius tells the story of Bob Kearns, the inventor of the
intermittent windscreen wiper and his battle to capture the value of his invention. The film
begins in 1962 when Kearns was driving his Ford Galaxie in Detroit. Light rain caused the
wipers to screech back and forth across the windscreen. Hearing the noise Kearns had his flash
of genius – why can’t wipers work like eyelids with a blinking action? Working at home in his
basement Kearns devised an electronic timer for the wiper comprising a transistor, a capacitor
and a variable resistor. When the voltage in the capacitor reached a certain level, the transistor
turned on and the wiper wiped the windscreen. Running the wiper motor drained voltage out
of the capacitor turning the transistor off and breaking the circuit thereby switching the wiper
motor off after a single wipe. The wiper remained static until the capacitor recharged and the
cycle began again.
Having patented his innovation with the help of a friend, Kearns showed it to engineers at
Ford. They had been working on a similar device but based on vacuum technology rather than
electronics. Ford’s engineers were enthusiastic. Kearns was told that the new wiper would be
incorporated into next year’s model and he began to plan to put it into production. Then quite
suddenly Ford said it wasn’t interested in the technology after all. Kearns was devastated. Over
time shock turned to anger when Ford models began to appear with an intermittent wiper.
Other manufacturers followed suit. As the film shows it was to take Kearns 20 years of legal
battles but eventually in 1990 a jury ruled that Ford had infringed Kearns’ patent, and the car
giant agreed to pay him $10.2million.
Source: Seabrook (2008).
An example of an innovation that suffered from poor value creation was the Sinclair C5.
Launched in a blaze of publicity, its creator, Clive Sinclair, heralded it as an electric car that
would transform urban transportation. When it appeared on the streets however it was clearly
not a car. It was in fact a single seat electric tricycle, powered by a modified washing machine
Smi21236_Chapter 01.indd 13
7/15/2009 4:53:37 PM
First pages
14
Chapter 01 Introduction
motor and car battery. With an effective range of 6.5 miles and a top speed of 12 miles per
hour it bore little resemblance to a conventional car (Anderson and Kennedy, 1986). It was
not clear at whom the C5 was aimed. It lacked the range required for all but the shortest of
journeys, while as a leisure vehicle it lacked the capacity to take passengers. It was clear
neither whom the C5 was intended for or what purpose it was designed to fulfil. In short, its
business model suffered from poorly articulated value creation and, not unsurprisingly, it
proved a commercial flop.
The second function of a business model is value capture. This involves appropriating
value from the activities undertaken by the innovator. In this context the term “appropriating”
means extracting or obtaining. The value that the innovator typically hopes to gain is
revenue (i.e. money), though there could be other gains as well. The most obvious way of
generating revenue is through outright sale where the consumer exchanges money in return
for ownership of the product or service, but there are a variety of other methods of generating
revenue including: renting, charging by transaction, advertising, subscription and charging
for after-sales support (Chesbrough and Rosenbloom, 2002). However, it is rarely
straightforward. If the innovation is very different from existing product offerings, consumers
may be reluctant to pay using conventional revenue generation mechanisms used in the
industry. Furthermore those working in the industry may be reluctant to break from the
revenue generation mechanisms with which they are familiar. In Chesbrough and
Rosenbloom’s (2002) terminology they have a cognitive bias to existing mechanisms. Yet in
order to capture value effectively it may be essential to break with the familiar and provide a
different revenue generation mechanism. There is also the danger that some other party will
appropriate the value by copying the innovation. Taking appropriate steps to protect the
inventor’s intellectual property (i.e. through patents) is essential to avoid this. It is precisely
these sorts of issues that commercialisation has to tackle and that the selection of an
appropriate business model aims to solve. For this reason revenue generation mechanisms
are a key feature of business models.
Apple’s iPhone mobile phone provides an example that illustrates some of the issues
surrounding the choice of revenue generation mechanism. When Apple brought out its iPhone
mobile phone in January 2007, it was applauded as a highly innovative product and much
praised for the originality of the design. However, the iPhone is not just another mobile phone.
According to Naughton (2008b) the iPhone is essentially a handheld computer which supports
the powerful and widely used Unix operating system. This transforms the phone from a
specialised gadget into something much more versatile. An important factor in boosting iPhone
sales, and therefore Apple’s revenues, is the wealth of software applications written and
developed by third parties. Anyone can write programs for the iPhone and once approved by
Apple they are available from the “Apps” branch of the iTunes store. The result has been what
Naughton describes as an “explosion of iPhone applications” (Naughton, 2008b). The Apps
store supplied more than 60 million downloads in its first month. Not only did this earn the
developers of these applications $70million, it also provided Apple with a useful $30million
(Apple splits revenues 30:70 with developers). More importantly, however, the presence of
this wealth of additional, complementary material greatly boosted the “value proposition”
that the iPhone represents. Hence as a revenue generation mechanism, the iPhone has become
a “platform” that other firms are prepared to invest in. This costs Apple nothing, but from a
user’s perspective it boosts the value proposition that the product represents. And it would
be wrong to see this as just a happy accident. Apple’s revenue generation mechanism is
predicated on taking deliberate steps to help and assist external organisations in developing
new software applications and therefore new uses for the iPhone.
Smi21236_Chapter 01.indd 14
7/15/2009 4:53:37 PM
First pages
Innovation: Invention – Commercialisation – Diffusion
Technology
input
i.e. invention
Business models
- Current business
- Licencing
- New venture
15
Economic
output
i.e.
commercially
available
products
Figure 1.6 Three types of business model
Value creation and value capture are key aspects of business models. Just as there are a
number of revenue generation mechanisms to facilitate value capture, so there are a number of
generic business models. The three business models identified by Chesbrough (2003a: p63) to
enable firms to convert technological potential (i.e. inventions) into economic value are:
1 incorporate the technology into the current business
2 license the technology to a third party (i.e. another firm)
3 launch a new venture to exploit the technology in new business arenas
These models determine who undertakes the commercialisation phase of innovation and how it
is conducted. They are each in their own way mechanisms for bringing an invention to market.
Examples of the application of the first model are very numerous, because it is the normal and
logical step for a company that has taken time and effort to develop something new, to take.
When Apple Computer developed the iPod in 2001 for instance, the company was very
clear that, although audio players were not part of the company’s existing product portfolio,
nonetheless this innovation would be incorporated into the existing business and sold as an
Apple product. Examples of the second business model are probably much more numerous than
most people imagine, simply because many large companies receive a significant income from
royalties resulting from the licensing of technology. An example of an innovator who initially
went down this route is James Dyson, who when he had developed his dual cyclone technology
for vacuum cleaners, decided that the best way for him to commercialise his invention was
for him to use a business model that entailed him licensing it to an existing vacuum-cleaner
manufacturer. Unfortunately this proved extremely difficult. While some vacuum-cleaner
manufacturers appeared at least to see the technological potential in Dyson’s dual cyclone
technology, they were too firmly committed to a business model based, in part at least, on a
revenue generating mechanism where revenue from replacement vacuum cleaner bags was
important in capturing value, to switch to a new business model based on incorporating Dyson’s
new dual cyclone technology into their business (Dyson, 1997: p134). As a result Dyson, having
generated some income from a small-scale licensing agreement with a Japanese firm, eventually
opted for a business model in which he created a new venture. Called Dyson Appliances Ltd,
the new venture eventually became a multi-million pound business. Another example of a firm
that went down this route was the British automotive component manufacturer Lucas Varity.
Having developed a revolutionary new electric system of power steering for cars, it chose to
form a new venture, in the form of a joint venture with the US-based automotive component
supplier TRW, in order to market the new technology to the world’s leading car manufacturers.
The significance of business models for the innovation process can be gauged by the fact
that the same technology taken to market through different business models will yield different
amounts of value, a fact that many would-be innovators have failed to appreciate.
Smi21236_Chapter 01.indd 15
7/15/2009 4:53:38 PM
First pages
Mini Case
16
Chapter 01 Introduction
Xerox 914 Copier
Chester Carlson invented the modern plain paper copier and he teamed up with a little known
company called Haloid Corporation in order to commercialise it. Believing there was great
commercial potential in its new product, Haloid sought a strong marketing partner. However,
approaches to IBM, General Electric and Kodak were all rebuffed. None could see any
commercial potential in the new device. The reaction of IBM was typical. After much detailed
analysis, they were unable to identify a significant value proposition. When IBM’s consultants
looked at the existing office copying market, they found two main types of product in use:
“wet” photographic methods and low-quality dry thermal processes. The business model in use
was to sell the copier at or near cost (typically about $300) generating revenue from sales of
supplies and consumables, which were sold at relatively high prices. This was the “razor and
razor blades business model”. Since the average machine produced only 15–20 copies
per day, consumers were happy.
The 914 on the other hand produced much better quality copies on plain paper using
electrostatic technology. Though the variable cost of copies was at least on a par with the
existing copiers, the 914 with its electrostatic technology, was much more expensive to
manufacture. IBM reasoned that the typical consumer would not buy an expensive machine
to produce a few hundred copies per month. Boldly Haloid chose to go it alone but with a
different business model. Instead of selling the copier they offered to lease it for $95 per month
with customers paying an additional 4 cents per copy beyond 2,000 copies per month. Haloid
(soon to be re-named Xerox), provided all the required servicing as part of the lease. This was
an attractive proposition to consumers. The cost was comparable to existing copiers. Only if
the quality and convenience of the plain paper 914 led them to make much more use of the
machine than they had done in the past would they pay more. Haloid was effectively betting
that there was a great potential latent value in its electrostatic technology, and so it proved.
The much improved quality and the convenience of using plain paper rather than special
copier paper, led customers to use the new machines far more than they had ever done in the
past. Such was the appeal of the 914 that consumers were soon using it to produce far more
than 2,000 copies per day and in the first six months the machine generated as much revenue
as Haloid had predicted for the whole life of the machine.
Sources: Chesbrough and Rosenbloom (2002); Owen (2004).
Diffusion
Diffusion is the process by which innovations are adopted and used by consumers, or in the
case of process innovations, by other organisations. Diffusion describes the way in which
innovations catch on and become popular. An innovation that becomes very popular and
widely used very quickly can be said to exhibit a rapid rate of diffusion, while one that catches
on more slowly will exhibit a slower rate of diffusion. Hence diffusion is the rate at which
innovations are adopted.
Diffusion very rarely takes place at a steady linear rate. Instead the normal pattern is for the
path of diffusion to exhibit an S curve (Geroski, 2000: p604). Consumers, initially unfamiliar
with the new product or service and the potential benefits it has to offer, may be reluctant to
Smi21236_Chapter 01.indd 16
7/15/2009 4:53:38 PM
First pages
What Next?
17
purchase it. Consequently, during this initial period sales are modest, resulting in a low rate
of diffusion. This will tend to be a period of awareness building, as consumers gradually
become familiar with the innovation. According to Rogers (1995) “early adopters,” highly
esteemed individuals able to influence the views of others, may be particularly important in
raising awareness at this stage. Over time as more consumers learn of the innovation and its
benefits, the rate of diffusion starts to accelerate, sales pick up rapidly and the innovation starts
to become popular. The diffusion path is now at the point where the curve is rising sharply.
This is a phase of rapid diffusion. Eventually as the top of the curve is approached and the
market starts to become saturated, sales begin to slow, a levelling out occurs and the rate of
diffusion moderates. By now those adopting are the “laggards” (Rogers, 1995), isolated
individuals who only adopt when forced to do so perhaps because of lack of alternatives.
By this point the innovation may be said to have diffused as the end of the diffusion phase is
reached (Figure 1.3).
Why does the diffusion path typically follow an S curve? Rogers (1995), suggests that social
factors can be particularly influential in terms of the willingness of people to adopt an
innovation. These social factors include things like peer pressure, fashion, word-of-mouth
communication and social networks. They impact on innovation adoption by influencing
would-be adopters. The so called “bandwagon” effect, where potential adopters are keen to
jump aboard and adopt an innovation for fear of being left behind, illustrates how this can
occur. In such cases adoption tends to be a function of the sheer number who have already
adopted. Typically what happens is that once a certain threshold level of adoption has been
reached, peer pressure, rather than rational assessment of potential benefits, causes many
to adopt the innovation. The effect is to exaggerate the diffusion path making the S curve
more pronounced. The power of social factors, particularly things like word-of-mouth
communication and peer pressure, is well illustrated by the diffusion of recent Internet-based
service innovations such as Facebook and YouTube. In both cases social factors have led to
diffusion being much more rapid than it would otherwise be, with a steeply rising S curve.
What next?
T
his chapter has provided a brief overview of innovation. It is clear that innovation is a
complex topic that draws not only on several academic disciplines, including economics,
marketing and engineering, but also different fields of professional expertise (e.g. scientists,
managers and lawyers). Each of the facets of innovation that this chapter has touched on is
now considered in more depth in the chapters that follow.
Chapter 2 seeks to categorise innovations. It builds on the part of the current chapter that
explored the scope of innovation. However, while this focused on the newness and novelty
of innovations, the categorisation in Chapter 2 is more broadly based. Two well-known
categorisations are presented. One is based primarily on novelty and complexity while the
other is based on functionality. By presenting different, one might almost say alternative,
categorisations of innovation, the reader hopefully comes both to understand the nature of
innovation rather better and appreciate the range of things covered by innovation. Whereas
Chapter 2 aims to enhance understanding of the nature of innovation, Chapter 4 presents
frameworks that provide scope for analysing the course of innovation. These frameworks
take the form of a number of theories of innovation. These it is argued, can be used, if not
to predict the course of innovation, then at least to aid explaining it, in other words why
Smi21236_Chapter 01.indd 17
7/15/2009 4:53:38 PM
First pages
18
Chapter 01 Introduction
some innovations occur when they do and why some have a much more profound impact
than others.
The current chapter has shown that innovation generally is a two-phase process that
involves an inventive/creative phase followed by a commercialisation phase, and the first of
these is addressed in Chapters 3 and 5. Chapter 5 focuses on what one might term the creative
dimension – that is how ideas that form the basis of an innovation originate. Chapter 3 on the
other hand is devoted to the consideration of technology. In as much as new technologies are a
source of innovation, it seeks to show how developments in technology impact upon
innovation. Rather than look at specific technologies it focuses on the broader impact of
technology.
Chapter 6 provides an overview of the process of innovation. As well as identifying the wide
range of activities associated with innovation (i.e. what you have to do in order to innovate), it
also explores different models of the process. This latter aspect shows that while there are a
various activities that have to be undertaken, how they are undertaken, by whom, and when,
can vary enormously.
One of the key messages coming out of the current chapter is that the second phase of
innovation, commercialisation, is crucial if an invention is to stand any chance of commercial
success. Commercialisation, it was noted, normally requires the use of a business model that
performs two key functions: value creation and value capture. Value capture is the focus of
Chapter 7 which provides detailed coverage of intellectual property rights. These rights are
crucial if an innovator is to appropriate and therefore profit from his/her creativity. The other
function of a business model is value creation, which is the function of Chapter 8 which looks
at innovation strategy. By looking at how organisations and individuals position an innovation
in relation to the market, innovation strategy is closely bound up with understanding the nature
of the value that an innovation creates and for whom.
While value creation and value capture are clearly a vital part of commercialisation, there
are other aspects to this phase of innovation. Earlier in the current chapter it was noted that
commercialisation covers a range of business activities including marketing, organisation and
finance. With aspects of marketing covered in Chapter 8 as part of innovation strategy,
Chapter 11 explores the managerial aspects of innovation, while Chapter 10 highlights the
difficulty of funding innovation and presents a range of funding mechanisms that can help to
bridge the temporal gap that all too often exists between investment outlay on the development
of a new product or service and the income stream that a successful innovation eventually
brings in. Chapter 10 particularly focuses on the funding of innovation by new start-up
businesses and to complement this, Chapter 9 examines the role of technological
entrepreneurs, those individuals who found technology-based businesses.
Finally the remaining three chapters provide a public policy perspective. Chapters 12
and 13 examine some of the policy instruments available at national and regional levels to
promote innovation, while the concluding chapter rounds off by considering national
innovation systems, which comprise a country’s infrastructure, in the broadest sense, for
supporting innovation.
Smi21236_Chapter 01.indd 18
7/15/2009 4:53:38 PM
First pages
What Next?
19
CASE STUDY: Nintendo Wii
Christmas 2006 was a strange time on the high street. If you’d looked through the window of
almost any computer games shop in Britain, you would have seen lots of enthusiastic punters
waving around a white object slightly larger than a mobile phone. Look a little further, and
you would have seen that they were playing tennis or golf, but not as we know it. They were
playing virtual tennis or golf using a Wii. The must-have present of Christmas 2006, the Wii,
was Nintendo’s new and highly innovative videogame console.
The Wii was unlike any other videogame console. A rival to Sony’s highly successful
PlayStation and Microsoft’s Xbox, both of which relied on awesome processing power,
state-of-the-art graphics and voluminous storage to make their “big beasts” market leaders
(Fry, 2008), the Wii relied on a very different approach. Instead of using buttons and joysticks
to enable the user to interact with the machine, as on conventional videogame consoles,
Nintendo’s new offering employed a wireless controller, the Wii Remote, a handheld device
(the white object mentioned earlier), similar to a TV remote controller, that utilised wireless
technology with built-in sensors to translate movement directly on to a TV screen,
transforming the Wii into the most exciting mass market device in years.
And what does all this mean for the user? Strapped to the wrist, the Wii Remote is used as
a pointing device that enables users to play sports-like tennis or golf, by swinging the wand in
the air to hit virtual tennis or golf balls, using similar actions to real-life tennis players and
golfers. This is altogether more realistic than using a conventional joystick physically
connected to the console. So realistic is the Wii that not long after it was launched newspapers
reported cases of enthusiastic users suffering bruised heads, black eyes and even damaged TV
sets as they lost control of their wands, one of the penalties of playing tennis in the living
room rather than out on the tennis court. Some players were even been reported to be
suffering from a form of “tennis elbow”. Recently Nintendo has supplemented the sporting
element by launching the Wii Fit, an “add-on” which features a “balanceboard,” which
resembles a pair of bathroom scales, on which you can do yoga, step aerobics and ski slaloms.
The Wii Fit will even calculate your Body Mass Index (BMI) enabling users to undertake a
daily workout regime.
In terms of innovation, the Wii is about very much more than providing videogame players
with a simulated game that is much more realistic, because one is no longer directly hooked
up to the console and control of the ball is via motions that are much more like the real game.
The Wii changed the nature of conventional videogaming.
What is different about the Wii is that, unlike Sony’s PlayStation and Microsoft’s Xbox, it
appeals to consumers outside the “hard-core” gaming market, particularly female gamers and
families. While titles such as the ultra-violent Grand Theft Auto sold well to traditional fans
who want eye-boggling graphics and more complex adventures, Nintendo recognised that
there was a vast untapped market of people who wanted simpler games that were fun to play
(Fildes, 2007). The console’s handset, the Wii Remote, revolutionised the market by allowing
consumers “physically” to play simple games such as tennis and ten-pin bowling on the
screen, in a manner very much akin to the real game, rather than with a joystick wired up to
the computer. While these games are far more basic than the highly sophisticated modern
games like Halo 3 that boast the best graphics, this has not deterred consumers from outside
the traditional videogames audience, attracted by the realistic human-computer interaction
Smi21236_Chapter 01.indd 19
7/15/2009 4:53:38 PM
First pages
20
Chapter 01 Introduction
offered by the Wii. It is this human-computer interaction that has attracted millions of adults,
for whom anything approaching running or lifting for fitness was out of the question on
account of the ravages of time and ageing, and who wouldn’t normally give videogames a
second thought, because the Wii offers games that are fun and user friendly and facilitate
participation with ease. It has also brought a whole new dimension to personal fitness.
Nintendo’s decision to target non-traditional videogame users was part of a deliberate
strategy. Having been the market leader in the late 1980s and early 1990s (Campbell-Kelly,
2004: p286), by the late 1990s Nintendo had lost its position as first Sony and then Microsoft
entered the market. Introduced in 1995, the Sony PlayStation utilised 32-bit technology,
thereby providing a “step-function improvement” (Campbell-Kelly, 2004: p287) over the
16-bit consoles that then dominated the videogame market. Not only was its software more
advanced and capable of offering much improved graphics, the PlayStation, by using CDs
instead of cartridges, was able to provide far more video, sound and game content within a
videogame. These innovations quickly enabled the PlayStation to establish a dominant
position in the videogame market and by 1998 it was the source of almost half of Sony’s
corporate profits (Chaplin and Ruby, 2006: p229). Microsoft’s Xbox appeared in 2002 and it
too provided serious competition, while Nintendo’s attempt at going head to head with Sony
and Microsoft with its GameCube videogame console triggered headlines proclaiming that
Mario – the animated plumber that symbolised Nintendo’s dominance of the computer games
market in the 1980s – had finally run out of tricks (Fildes, 2007).
The launch of the Wii in late 2006 represented a very different approach. According to
Nintendo’s game designer Shigeru Miyamoto, the videogame consoles then dominating the
market were a bit like dinosaurs – very powerful but inflexible – and as such were in danger of
rendering each other extinct (Hall, 2006). Nintendo had identified that the computer gaming
market had started to stagnate and despite increasing sales, the household penetration of consoles
had for several years remained flat at around 30 per cent. Although more games were being sold
they were actually being bought by the same narrow audience of committed game players.
Faced with this situation Nintendo went back to the drawing board and instead of starting
with technical aspects such as blistering chip speeds or cutting edge graphics, focused on what
might convince parents to buy the new console for their kids. When that happened, the
discussion focused on basic concepts and goals, not the technical specifications of the console.
The goal became how to come up with a machine that parents would want—easy to use, quick
to start up, not a huge energy drain, and quiet while it was running. Rather than just picking
new technology, Nintendo’s engineers thought seriously about what a game console should be.
The consensus was that the games should be fun. By offering fun it was hoped the new console
would appeal to a mass market of first-time game players, women and older consumers not
typically drawn to this form of interactive entertainment. Nintendo staked all on a cheaper,
simpler device, that used a different kind of technology to enhance the personal relationship
between player and machine, rather than the technical sophistication of its games. The project
which was codenamed, Revolution, aimed to use a comparatively unsophisticated console,
with Nintendo devoting its research and development (R&D) effort instead into developing a
new type of controller that would dramatically improve the human-computer interface.
To create a new human-computer relationship Nintendo’s engineers aimed to replace the
conventional joystick controller and the associated messy wires with a wireless controller that
could sense motion in three dimensions. To do this Nintendo’s engineers planned to combine
Smi21236_Chapter 01.indd 20
7/15/2009 4:53:38 PM
First pages
What Next?
21
a number of different technologies to mimic three dimensional (3D) space recognition. The
wireless controller they came up with incorporated an accelerometer, an instrument that
accurately records how fast it is travelling, in three axes: backwards and forwards; up and
down; left and right and rotating in any direction (Chu, 2008). In addition it also incorporated
an infrared camera, which worked out where the controller was in space, relative to the screen
on which the games were being played. Finally, there was wireless communication that fed
all this data to the console. This enabled the console to detect the controller’s position in
3D space and track its relative motion on a screen. However, the wireless controller took
Nintendo’s engineers two years to develop. Getting the pointer to work reliably proved
particularly difficult. It worked fine in a workshop environment, but bright lights and sunshine
interfered with its accuracy. So too did the size of room in which the machine was being used.
Eventually, after two years of development, including exhaustive testing in a range of different
environments, the wireless controller, or Wii Remote as it was known, was ready for market.
The development effort proved worthwhile for the Wii changed the rules of the videogame
market completely. The result was a remarkable rebirth of Nintendo’s fortunes. In its first full
year the lower powered Wii sold as many consoles in the UK as the PlayStation 3 and Xbox
combined, thanks to the appeal of its innovative motion-sensitive controller and familyfriendly multi-player games. During the same year the Kyoto-based company overtook Sony in
market capitalisation, at one point becoming Japan’s third largest company behind Toyota and
Mitsubishi. By April 2008 more than 25 million consoles had been sold worldwide.
References
Campbell-Kelly (2004); Chaplin and Ruby (2006); Chu (2008); Fildes (2007); Fry (2008);
Hall (2006).
Questions
1 What was new and novel about the Wii?
2 Where would you locate the Wii in terms of the degrees of innovation matrix
(Figure 1.2) and why?
3 How did Nintendo’s approach to the inventive/creative phase of the Wii’s innovation
differ from its rivals Sony and Microsoft?
4 If the Wii was not as technologically advanced (in terms of graphics, chip speed etc.) as
its rivals from Sony and Microsoft, how can it be an innovation?
5 What was the value proposition being put forward by the Wii and how did this differ
from the PlayStation and the Xbox?
6 Who was the value proposition aimed at and why?
7 What was the business model and the associated revenue generation mechanism used for
the Wii?
8 How does the Wii Fit contribute to Nintendo’s business model?
9 Which of the three routes to invention did Nintendo use with the Wii (see Figure 1.4)?
10 What does the Wii tell us about the relative importance of technology and
customer needs?
Smi21236_Chapter 01.indd 21
7/15/2009 4:53:38 PM
First pages
22
Chapter 01 Introduction
Questions for discussion
1 Why do so many biographies of people associated with successful innovations appear more
preoccupied with inventions?
2 Explain the difference between invention and innovation. Which do you consider the most
important and why?
3 Outline the main phases in the process of innovation.
4 Explain what is meant by the term business model in the context of innovation?
5 Why is value creation likely to be a problem with innovations that involve a high degree of
novelty?
6 Why is value capture an important issue for innovators, particularly individual innovators?
7 What personal qualities do you consider are essential for successful innovators?
8 Why is it that innovation is often now a collective activity?
9 Internet-related innovations have been associated with much discussion about business
models – why?
Exercises
1 Prepare a briefing document for the Nintendo Wii. This should be no more than six pages in
length and should provide the reader with a clear understanding of the nature of the Wii, as
well as the factors that account for its success as an innovation and the important lessons
you feel it holds for would-be innovators. As part of the briefing prepare some slides that will
enable you to make a presentation in class.
To carry out this task you will need to classify the product, identify prospective purchasers/
consumers, distinguish product features, identify competitor products, etc. Your aim should be
to show what it is about the Nintendo Wii that makes it a good example of an innovation.
You will need to carry out some basic fact-finding research. Possible sources are stores
and catalogues that stock the Nintendo Wii. If you know someone who owns a Wii, have a
look at it, and more importantly ask them who uses it and for what. The websites of
newspapers such as The Independent and The Guardian can also be used to locate articles
about the Wii.
2 Prepare a profile of a company that you feel has a strong record of innovation.
As well as providing background details on the company, you will need to identify
examples of successful innovations they have produced. Indicate why these innovations
have been successful and try to identify the expertise and experience that you feel enabled
the company to innovate.
You will probably find that biographies, industry studies and similar sources will be
useful. You will find details of some these books in the bibliography. Internet searches may
well enable you to find short profiles of the innovations you are interested in. However, be
warned that such profiles often lack detail and tend to treat the subject matter in an
unsophisticated and uncritical manner.
Smi21236_Chapter 01.indd 22
7/15/2009 4:53:39 PM
First pages
What Next?
23
Further reading
1 Dyson, J. (1997) Against the Odds, Orion Business, London.
If you only ever read one book that is in any way about innovation, this is the one. It
describes in much detail how James Dyson developed the dual cyclone vacuum cleaner. It
covers both the invention and commercialisation phases of innovation. The invention phase
of innovation is described at length with plenty of coverage of prototype building and
testing. But most important of all there is also plenty about the commercialisation stage of
innovation. Business models may not be discussed specifically, but their importance clearly
comes through in the text. Above all though it gives a valauble insight into just what
innovation entails.
2 Howells, J. (2002) The Management of Innovation and Technology, Sage Publications,
London.
An unusual textbook about innovation. It isn’t the usual highly structured account of
innovation. But it is very readable and provides a fascinating perspective on innovation. It
includes some excellent examples of innovation. These are not clearly signposted as case
studies, but they are detailed and they provide valuable insights into the nature of innovation.
3 Chesbrough, H.W. (2003) Open Innovation: The New Imperatives for Creating and Profiting
from Technology, Harvard Business School Press, Boston, MA.
A highly influential text. It extols the virtues of a more open approach to innovation where
inventions and breakthroughs come not just from internal sources but external sources as
well. In the process it shows how the context of innovation has changed dramatically in
recent years. It also highlights some of the key issues in innovation, most notably through
giving very explicit consideration to business models.
4 Van Dulken, S. (2002) Inventing the 20th Century: 100 Inventions that Shaped the World,
British Library, London.
Titles can be deceptive. All of the inventions covered in this book are also innovations. It
provides useful background information on many well-known innovations. It doesn’t provide
a great of data on each one, but it is a good starting point. Certainly this is a reference work
that is worth consulting to build up quickly a picture of when and how a particular
innovation occurred.
5 Textbooks on innovation
These are increasing in number. Some of the more comprehensive ones are: Dodgson, M.,
D. Gann and A. Salter (2008) The Management of Technological Innovation, Oxford
University Press, Oxford; Tidd, J., J. Bessant and K. Pavitt (2005) Managing Innovation:
Integrating Technological, Market and Organizational Change, 3rd edn, John Wiley and
Sons, Chichester; Trott, P. (2005) Innovation Management and New Product Development,
3rd edn, FT Prentice Hall, London; Von Stamm, B. (2008) Managing Innovation, Design and
Creativity, 2nd edn, John Wiley and Sons, Chichester.
6 Journals on innovation
Among the leading academic journals that specifically focus on innovation are: Research
Policy; R&D Management; Industry and Innovation; Technovation; International Journal of
Innovation Management; Technology Analysis and Strategic Management; Journal of Product
Innovation Management; Creativity and Innovation Management; European Journal of
Innovation Management; International Journal of Innovation and Learning.
Smi21236_Chapter 01.indd 23
7/15/2009 4:53:39 PM